👍Difference between audit of co-operative society & joint stock company

Clipped from: https://taxguru.in/company-law/difference-audit-co-operative-society-joint-stock-company.html

Difference between audit of co-operative societies and joint stock companies – Auditor’s responsibility to Registrar &  Society

1. Audit of all co-operative Societies at least once every year is the statutory responsibility of the Registrar and Society and hence the primary responsibility of the auditor is to the Registrar and Society who has appointed and authorized to carry out the audit.

2. The scope of Co-operative audit as we have seen is much more wider than that of a joint stock company. Whereas the auditor of a joint stock company has merely to report on the correctness of the profit and loss account and the balance sheet, the auditor of a Cooperative Society has to see many other things besides, For E.g. company may include in its profits all accrued interest and other unrealized income, Co-operative societies cannot take into account overdue interest

3. It has further been laid down in sub-section (2) of section 81 that audit shall include an examination of the overdue debts, if any, the verifications of the cash balance and securities and a valuation of the assets and liabilities of the society. The auditor of a Co-operative Society has not only to conduct his audit according to the normally accepted principles, but, also to ensure the proper conduct of audit by ensuring compliance with the provisions of the act, rules and Byelaws and instructions issued by the Registrar

4. Examination of overdue debts: Examination of overdue debts, as we have seen has been made a special responsibility of the auditor in view of the far-reaching consequences of such overdue debts of the working of credit societies which outnumber the rest. Examination of overdue debts also involves a careful assessment of chances of their recovery and their classification into good, doubtful and bad. The auditor has also to see the due action is taken for recovery of dues and overdues

5. Valuation of assets and liabilities: The auditor has also to see that all known liabilities are brought into account and where the amounts are not certain, the estimates made have been reasonable. The auditor has also to see that the provisions made are adequate. The auditor has to also see the standard accounting principles for valuation of assets and liabilities are followed by the society, and variation to them should be recorded in his report.

6. Adherence to Co-operative principles: The important result expected in the audit of a joint stock company is the amount of profit available for distribution while the primary concern of the auditor of a Co-operative Society is to ascertain how far the society has achieved the objects for which it has been organized and how far it has succeeded in furthering the moral and material well being of its members

7. Observance of the provisions of the Act, Rules and Byelaws: A Co-operative auditor, however, is not only required to point out all cases of infringement of the provisions of the Act, Rules and the Byelaws of the society, but also of the directives contained and suggestions made in the various Government Notifications and Circulars issued by the Registrar and Government from time to time. Where these infringements have financial implications, he has to include them in a separate schedule with necessary particulars so as to enable the Registrar to initiate action under section 88 of the act. However, where they have no financial implication, he has to submit a special report furnishing particulars and suggesting remedial action by the Department and the federal society of which the society is affiliated

8. Furtherance of public welfare and safeguarding of public funds: The auditor during the course of his audit has to see that these privileges and concessions are not misused and that the operations of the society are conducted with due regard to the interests of the common man. For.e. g. a number of valuable privileges and concessions, both administrative and financial, have been granted to them as the cost of the taxpayer like non taxing under concept of mutuality etc

9. Personal verification of members and examination of their pass books: The auditor has not only to compare the entries in the books with the receipts, vouchers, statements of accounts and other documents, but has also to make thorough inquiries by calling for explanations and personal verification of the members’ accounts. In case of agricultural credit societies and other rural societies, the auditor is required to call for and examine the entries made in the passbooks issued to members and get the outstanding balances confirmed in his presence. Personal verification of members’ accounts is a very good safeguard to prevent manipulation of accounts and by putting intelligent questions, many cases of frauds and other serious irregularities have come to light which would not otherwise have been possible.

We have already seen that under provisions of Section 81(3) of the Maharashtra Co-operative Societies Act, the auditor has been given power to summon members and compel them to produce their pass books and statements, receipts and other documents issued to them by the society in the course of their dealings with it. The auditor has thus powers to go behind the books of accounts and these he must avail of in order to ascertain the true position of the society

10. Assessment of damages: If any deficiency or loss has occurred which can be attributed to the negligence, want of proper care, misfeasance or misconduct on the part of the committee or any officer or member of the society, the auditor has to submit special report in accordance with the provisions of sub-section 5B of Section 81. The Registrar, acting on the special report of the auditor and after examining into the conduct of the persons concerned, has power under section 88 to assess damages and order the person responsible to pay to the society the amount assessed by him. The auditor has thus not only to play the critical role of watching the interests of the members and creditors of the society, but also, in view of the numerous opportunities available to unscrupulous office bearers to commit frauds and misappropriations, the blood hound spirit in him has also to be brought into play, wherever necessary.

11. Certification of Bad debts: Rule 49 of the Maharashtra Co-operative Societies Rules lays down that bad debts can be written off only when they are certified as such by the auditor. The procedure laid down in the Rule requires that all bad debts and irrecoverable losses, before they can be written off against the Bad Debts Funds or the Reserve Fund or the Share Capital, should have been certified as bad debts or irrecoverable by the auditor. However, this provision is not applicable to Co-operative Credit Structure Entity (i.e. PACS, DCCB, SCB). Such entity shall write off its bad debts on approval of its General Body in conformity with guidelines of RBI and NABARD

12. Awarding audit classification to the society: After completion of his audit, the auditor is required to award an audit classification to the society, which he has audited. All Co-operative Societies are awarded a classification letter, A, B, C, or D according to certain well-recognized principles as laid down in this manual and as may be specified by Registrar from time to time. The audit class of a society indicates the degrees of success achieved by it, its financial stability and its operational efficiency.

13. Adherence to Accounting Policies: Societies have to adopt the accounting policies which must be in consistent with Accounting Standards issued by State Government or The Institute of Chartered Accountants of India (ICAI). The society has to prepare and publish the adopted accounting standards with changes thereon in the notes given with financial statements. The accounting policies adopted by the society which are consistently followed by the society. If changes are made in the accounting policies which has no material effect on financial statements need not be reported by the auditor. However, the changes in the policies which have material effect on the financial statements, need to be reported by the auditor.

Article is open for suggestion, modification and improvement. Views are personal and not of ICAI or Publisher. Author may be reached @ camundadass@gmail.com

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